Robinhood, the popular free trading app, has been ordered to pay over $10 million in penalties by several US states for engaging in practices that harm investors. The company has been accused of failing to properly disclose its financial arrangements with market makers and providing inadequate customer support, among other issues. The penalties will be distributed among participating states and will serve as a warning to other fintech companies to prioritize transparency and accountability in their business practices.
Robinhood to pay $10.2 million in fines for operational deficiencies, says California regulator
Robinhood, the American financial services company, will pay around $10.2 million in fines for operational deficiencies that negatively affected investors during the COVID-19 crisis, according to the California Department of Financial Protection and Innovation (DFPI). Robinhood previously faced a $30 million penalty last summer from the New York State Department of Financial Services (NYDFS) for violating anti-money laundering and cybersecurity laws.
DFPI became the latest state regulator to join the multi-million agreement with Robinhood. Regulators from Alabama, Colorado, New Jersey, Delaware, Texas and South Dakota alleged that Robinhood harmed some of its investors in March 2020 by neglecting several policies. The regulators claimed that Robinhood failed to inform users about the risks associated with multi-leg option spreads, did not design a customer identification program, and did not exercise due diligence before approving certain option accounts. In addition, it also did not cooperate with the Financial Industry Regulatory Authority (FINRA) and other relevant agencies.
The operational setbacks allegedly occurred in March 2020 when hundreds of thousands of investors relied on Robinhood’s platform. NASAA President Andrew Hartnett praised the efforts of the state regulators, which aim to benefit affected investors. Despite the fines, California’s regulator found no evidence of fraudulent activities conducted by Robinhood, and the company fully cooperated with the investigation.
Robinhood previously faced a $30 million fine from NYDFS in August 2022 after it found significant failures of compliance programs in Robinhood Crypto, the cryptocurrency-focused unit of the online brokerage firm. The agency claimed that Robinhood had violated anti-money laundering requirements and did not make proper upgrades to its transaction monitoring system. Furthermore, it followed cybersecurity policies that did not align with the standards outlined by the NYDFS.
DFS Superintendent Adrienne A. Harris said at the time that the department would continue to investigate and take action when any licensee violated the law or the department’s regulations, which are critical to protecting consumers and ensuring the safety and soundness of institutions.
As financial regulators crack down on non-compliant financial services companies, it is essential for platforms such as Robinhood to comply with common-sense protections for investors and consumers as required by law. This is necessary to protect consumers’ interests and ensure that financial service providers behave ethically and fairly.
Title 1: Robinhood Fined for Operational Deficiencies: California Regulator
Title 2: Robinhood Faced $10.2 Million Fine for Failing Investors, Says California Regulator